Chapter 13
Protect Your Home and Personal Property
If you have a regular income (e.g. employment, social security, retirement), Chapter 13 Bankruptcy protection will allow you the opportunity to make adjustments to the amount of money you owe, while allowing you to keep your home, car and other personal property.
Under Chapter 13, you can keep all assets (property) by entering into a court-supervised repayment plan. You’ll be required to file a plan to pay your debts, or part of your debts, from your current income. These plans range from a period of 3 to 5 years.
Chapter 13 Bankruptcy Protection
Under a Chapter 13 filing, the team at Gateway Bankruptcy Group will help you come up with a payment plan that allows you to pay off your creditors, without losing your home or other property. We’ll help you prevent foreclosure, repossessions, and wage garnishment, with a plan that fits your financial situation.
Don’t be afraid to take that first step. Rely on more than 20 years of bankruptcy experience to help you navigate a difficult financial and legal situation, and come out stronger than ever. Contact us today for more information.
How Does Chapter 13 Work?
Chapter 13 is the part (or chapter) of the Bankruptcy Code under which a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. A person who files under Chapter 13 is called a debtor. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments required in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
Why File Chapter 13 Bankruptcy Instead of Chapter 7?
- To deal with debts not discharged in Chapter 7: For some people with significant non-dischargeable debts, a Chapter 7 will not provide complete relief from creditors.
- Tax debts: Certain tax debts are not discharged under Chapter 7. If you are not able to work out payment arrangements with the IRS, you may be faced with a garnishment. Chapter 13 allows for the payment of the taxes in your plan and generally prohibits the assessment of additional penalties and interest.
- Student loans and child support arrears: You can cure support arrears and even deal with student loans.
- To save a home from foreclosure: In most cases, a Chapter 7 will only provide limited protection, and the Judge is likely to allow the foreclosure to go forward within one or two months. On the other hand, Chapter 13 has special provisions that allow you to cure the default and keep the mortgage company from foreclosing. For more
details, see "stop foreclosure". - To save a car from repossession: You can prevent repossession or recover a repossessed car. By including the car loan in your Chapter 13, you can reduce the interest rate and possibly reduce the balance owed on the car loan. In some cases, the Chapter 13 payment may be lower than the original car payment.
- To protect a cosigner: Chapter 13 has a special provision that allows you to protect friends and family members that cosigned on one of your debts.
- To keep non-exempt property: A Chapter 7 Trustee is obligated to take non-exempt property; however, in Chapter 13 you can keep the property as long as your creditors receive a certain amount (at 0% interest) under your Chapter 13 plan.
- You need immediate relief: Creditors are driving you nuts. Your utility company has sent you a Shut-Off Notice; your wages are being garnished; your bank account was frozen; and the
repo man is looking for your car. In Chapter 13, you can pay most of your legal fees through the repayment plan. Depending on your situation, the total fee to file starts out at around $343. - You can discharge more debts in Chapter 13: Some debts are not discharged in Chapter 7 but will be discharged in Chapter 13. These include debts to pay taxes, certain marital settlement agreements, and damages for willful and malicious injury to property.
- You have a moral desire to pay your creditors: Some people feel better about paying their debts back; however, they just can’t make the payment creditors are demanding. Chapter 13 allows you to repay your debts under a plan that you can afford.
- Flexibility: If your circumstance change (i.e., income changes or you decide to give up your car or house), you can modify your Chapter 13 plan. You may even be able to refinance or sell your home during the plan. Also, unlike a Chapter 7 case, you can almost always dismiss your Chapter 13 case at any time.
- To minimize credit damage: Any bankruptcy will have an impact on a credit report for up to 10 years. A Chapter 13 discharge has less impact as it reflects an effort to repay debt and will usually be reported for only 7 years after filing. Chapter 13 Trustees want to make your case succeed, whereas Chapter 7 Trustees want to figure out a way to take your property. Although the majority of people filing Chapter 7 do not lose any property, the Chapter 7 Trustee has an obligation to take property not exempted by law.
- You are likely to incur significant debts (post-petition) in the future: If you have an ongoing medical condition and need immediate relief from your creditors, a Chapter 7 may not be the best option. Although you can include medical bills for treatment up to the date of bankruptcy, any future treatment will be your responsibility. Under Chapter 13, a debtor will have the ability to discharge these debts by dismissing the case and filing another Chapter 13 or Chapter 7 case.
Examples of Cases Under Chapter 7 and 13 Respectively
- Chapter 7
example : Debtor owed $60K in medical bills and credit card charges resulting from her medical condition. Two hospitals had sued her, and one hospital was garnishing her wages. The debtor filed Chapter 7 and was able to discharge all of her debts and terminate the garnishment. One year later, the debtor was hospitalized for ten days and received a bill for $25,000. The debtor was responsible for the debt and barred from filing another bankruptcy. (Chapter 7 Debtors must wait 8 years to file another Chapter 7; or 4 years to file a Chapter 13 and receive a discharge.) - Chapter 13 example: Same facts except debtor filed Chapter 13. After incurring the medical debt, the debtor was able to dismiss her bankruptcy and file another bankruptcy case that included the additional $25,000 medical debt.
Frequently Asked Chapter 13 Questions
How does Chapter 13 differ from a private debt consolidation service?
In a Chapter 13 case, the bankruptcy court can provide aid to the debtor that credit counseling services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor’s property, forcing unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and discharging a debtor from unpaid portions of debts. Credit counseling services have none of these powers.
What is a Chapter 13 Plan?
It is a written plan presented to the bankruptcy court by a debtor and his or her attorney. The plan states how much money or other property the debtor will pay to the Chapter 13 trustee, how long the debtor’s payments to the Chapter 13 trustee will continue, how much will be paid to each of the debtor’s creditors, which creditors will be paid outside of the plan, and certain other technical matters.
What is a Chapter 13 trustee?
A Chapter 13 trustee is a person appointed by the United States trustee to collect payments from the debtor, make payments to creditors in the manner outlined in the debtor’s plan, and administer the debtor’s Chapter 13 case until it is closed. In some cases, the Chapter 13 trustee is required to perform certain other duties, and the debtor is always required to cooperate with the Chapter 13 trustee.
What debts may be paid under a Chapter 13 plan?
Almost all debts, whether they are secured or unsecured. Even debts that are non-dischargeable, such as debts for student loans, alimony or child support, may be paid under a Chapter 13 plan.
Must all debts be paid in full under a Chapter 13 plan?
No. In many cases, a debtor may only need to pay back a fraction of his or her general unsecured debt (i.e., credit
cards and medical debts). The amount will depend primarily on what the debtor can reasonably afford and the amount of non-exempt property the debtor owns. The unpaid balances of most general unsecured debts that are not paid in full under a Chapter 13 plan are discharged upon completion of the plan (Note: some debts such as student loans will not be discharged upon completion).
When must the debtor begin
making payments to the Chapter 13 trustee and how must they be made?
The debtor must begin making payments to the Chapter 13 trustee within 30 days after the debtor’s plan is filed with the court. The payments must regularly be made, usually on a weekly, biweekly, or monthly basis. Payments can be made several ways.
- If the debtor is employed, payments can be deducted from wage order.
- If the debtor does not want a wage order, payments can be made by EPAY (electronic debit from
bank account for the plan payment). - Payments can be also be made by money order if the debtor is not employed.
How long does a Chapter 13 plan last?
A Chapter 13 plan will last from three to five years (depending on income), unless all debts can be paid off in less time.
Is it necessary for all creditors to approve a Chapter 13 plan?
No. To become effective, a Chapter 13 plan must be approved by the court, not by the creditors. The court, however, cannot approve a plan unless secured creditors are dealt with in a certain manner. Also, creditors are permitted to file objections to the debtor’s plan, and these objections must be ruled on by the court before it can approve the debtor’s Chapter 13 plan.
When should a husband and wife file jointly under Chapter 13?
If both spouses are liable for any significant debts, they should file jointly under Chapter 13, even if only one of them has income.
May a self-employed person file under Chapter 13?
Yes. A self-employed person meeting the eligibility requirements may file under Chapter 13. A debtor engaged in business may continue to operate the business during the Chapter 13 case.
Will a person lose any property if he or she files under Chapter 13?
Usually not. Under Chapter 13, creditors are usually paid out of the debtor’s income and not from the debtor’s property.
The filing of a Chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor or the debtor’s property. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the debtor during the entire course of the Chapter 13 case. If the debtor is later granted a Chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the debtor after the case is closed.
May a person whose debts are being administered by a financial counselor file under Chapter 13?
Yes. A financial counselor has no legal right to prevent a person from filing any type of bankruptcy case, including a Chapter 13 case.
Are the names of persons who file under Chapter 13 published?
When a Chapter 13 case is filed, it becomes a public record, and the name of the debtor may be published by some credit reporting agencies. However, newspapers do not usually publish names
of persons who file under Chapter 13.
Does a person lose any legal rights by filing under Chapter 13?
No. Filing under Chapter 13 is a civil proceeding and not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a Chapter 13 case.
May employers or government agencies discriminate against persons who file under Chapter 13?
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under Chapter 13. It is also illegal for local, state, or federal government agencies to discriminate against a person as to the granting of licenses, permits, student loans, and similar grants because that person has filed under Chapter 13.
What is required for court approval of a Chapter 13 plan?
The court may confirm a Chapter 13 plan if:
- The plan complies with the legal requirements of Chapter 13
- All required fees, charges, and deposits have been paid
- All priority claims will be paid in full under the plan
- The plan was proposed in good faith
- Each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under Chapter 7
- It appears that the debtor will be able to make the required payments and comply with the plan
- Secured creditors are treated in a manner required by law (in general the debtor will pay secured creditors a certain amount that will depend on the circumstances of the case or surrender the property).
How are the claims of unsecured creditors handled under Chapter 13?
Unsecured creditors must file their claims with the bankruptcy court within 90 days after the first date set for the meeting of creditors for their claims to be allowed. The government (e.g., IRS), has 180 days from the date the bankruptcy was filed to file a claim. Dischargeable unsecured creditors (e.g., credit card and medical debts) who fail to file claims within that period are barred from doing so, and upon completion of the plan, their claims will be discharged The debtor’s attorney may file a claim on behalf of a creditor (e.g., for non-dischargeable student loans). After the claims have been filed, the debtor’s attorney may file objections to any claims that he or she disputes. When the claims have been approved by the court, the Chapter 13 trustee begins paying unsecured creditors as provided for in the Chapter 13 plan. Secured creditors and priority creditors are paid before unsecured creditors.
What if the debtor is temporarily unable to make the Chapter 13 payments?
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he or she can do so.
What if the debtor incurs new debts or needs credit during a Chapter 13 case?
Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13 plan. These are:
- Debts for taxes that become payable while the case is pending
- Consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the Chapter 13 trustee. All other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Debtors are prohibited from incurring new non-emergency debts in excess of $1,000 during the case unless they are approved in advance by the Chapter 13 trustee. Therefore, the approval of the Chapter 13 trustee should be obtained before obtaining large debts such as a car loan after the case has been filed. The incurrence of regular debts, such as debts for telephone service and utilities, do not require the trustee’s approval
What should the debtor do if he or she moves while the case is pending?
The debtor should immediately notify his / her attorney so that a Notice of Change of Address can be filed with the court. Most communications in a Chapter 13 case are by mail, and if the debtor fails to receive an order of the court or a notice from the Chapter 13 trustee because of an incorrect address, the case may be dismissed.
What if the debtor later decides to discontinue the Chapter 13 case?
The debtor has the right to dismiss a Chapter 13 case.
What is the role of the debtor’s attorney in a Chapter 13 case?
The debtor’s attorney performs the following functions in a typical Chapter 13 case:
- Examining the debtor’s financial situation and determining whether Chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed
- Assisting the debtor in the preparation of a budget
- Examining the liens or security interests of secured creditors to determine their validity or avoidability, and taking the legal steps necessary to protect the debtor’s interest in such matters
- Devising and implementing methods of dealing with secured creditors
- Assisting the debtor in devising a Chapter 13 plan that meets the needs of the debtor and is acceptable to the court
- Preparing the necessary pleadings and Chapter 13 forms
- Filing the Chapter 13 forms and pleadings with the court and paying, or providing for the payment of the filing fee
- Attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case
- Assisting the debtor in obtaining court approval of a Chapter 13 plan
- Checking the claims filed in the case, filing objections to improper claims, and attending court hearings thereon
- Assisting the debtor in overcoming any legal obstacles that may arise during the course of the case
- Assisting the debtor in obtaining a discharge upon the completion or termination of the plan.
This information is intended to inform, but not to provide legal advice. The reader should seek professional advice with regard to specific applications of the information contained herein.
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